Challenges With Judging and Interpreting a Drug’s Launch Price

Am J Manag Care. 2025;31(7):In Press

Takeaway Points

We found 4 reasons why comparing a launch price with a value-based price from a conventional cost-effectiveness analysis requires further examination before jumping to a judgment about its policy relevance. These reasons are as follows:

• The launch price rarely equates to the price actually paid.
• Cost-effectiveness analyses often do not measure everything that matters.
• Cost-effectiveness analyses rarely account for future price changes.
• Commonly used cost-effectiveness thresholds have great uncertainty.

Drug prices at launch continue to be debated in the lay press and other forums.¹ We commonly observe public launch price announcements for newly approved pharmaceuticals followed by critical commentaries and price judgments. We suggest that judging and interpreting a drug’s launch price is not as straightforward as it may seem.

There is a great deal of writing and scholarship debating the role of cost-effectiveness analysis in drug pricing, as well as the best practices for cost-effectiveness analysis methods. Conventional cost-effectiveness analyses may use an algorithm to generate a value-based price or an amount that a drug could be priced at product launch to meet a cost-effectiveness threshold. Less explored is whether the derived value-based price at launch from a conventional cost-effectiveness analysis is a useful tool in evaluating a drug’s value over the product’s lifetime. When we examined that question, we found 4 reasons why comparing a launch price with a value-based price from a conventional cost-effectiveness analysis requires further examination before jumping to a judgment about its policy relevance.

We describe these 4 reasons below and then suggest how a focus on a drug’s launch price may be misplaced if the goal is to have a truly dynamically efficient system that produces the optimal amount of innovation. We argue that instead of emphasizing a drug’s launch price, examining the societal net benefits of a medicine over the long term (ie, the social surplus of a medicine) is a more appropriate focus.

Reason 1: The Launch Price Does Not Equate to the Price Actually Paid

A recent analysis² reported an unweighted average discount off list prices (not exclusive to launch prices) of 53.5%. This difference between the price that a drug is listed at (ie, the list price) and the price that is received by the manufacturer (ie, the net price) has garnered considerable attention. Many practitioners of cost-effectiveness analyses³ attempt to use the net price rather than the list price. This is encouraged as good practice. However, a challenge occurs when the launch price of a drug is subsequently compared with a threshold-based price from a cost-effectiveness analysis. These are not apples-to-apples comparisons because the launch price represents the list price, and a threshold-based price often refers to estimates of a net price.

A better practice would be to interpret a launch price as what it is—the list price that is subsequently discounted and rebated⁴ to equate to a net price. Although the difference between the list price and net price likely has substantial heterogeneity—over the life cycle of the drug, by therapeutic class, by payer, etc—the list price is unlikely to equate to the net price most of the time.

Reason 2: Cost-Effectiveness Analyses Often Do Not Measure Everything That Matters

Cost-effectiveness analyses typically take a health care sector perspective and thus typically only include health system costs and patient health benefits. In 2016, the Second Panel on Cost-Effectiveness in Health and Medicine recommended that a societal perspective analysis also be conducted alongside every cost-effectiveness analysis.⁵ A societal perspective would also estimate non–health system costs such as transportation as well as benefits beyond a patient’s health status such as patient productivity and caregiver time. In 2018, an International Society for Pharmacoeconomics and Outcomes Research Special Task Force also called for the consideration of additional elements beyond health system costs and patient health benefits.⁶ Without accounting for a drug’s impact on sectors outside of health system costs and patient health benefits, threshold-based prices from cost-effectiveness analyses are not comprehensive assessments of a drug’s value.

A better practice would be to expand the perspective of the cost-effectiveness analysis to a societal one and consider the social surplus of a medicine over the entire product life cycle. Quantifying additional value elements through novel frameworks such as generalized cost-effectiveness analysis⁷ will help broaden the definition of value, but inevitably some impacts will be very difficult to quantify in a cost-effectiveness framework, suggesting that using cost-effectiveness analyses alongside an algorithmic approach to generating value-based prices remains fraught with limitations and subjectivity.

Reason 3: Cost-Effectiveness Analyses Rarely Account for Future Price Changes

The majority of cost-effectiveness analyses hold a drug’s price constant over time.⁸ This ignores—per the Hatch-Waxman Act market design—that the majority of drugs will eventually lose exclusivity and that competition—especially generic competition—will eventually drive down prices. Without accounting for expected price changes, threshold-based prices from cost-effectiveness analyses should be interpreted as the price for a patient who starts the drug at launch in a world where the launch price remains constant over the patient’s lifetime. However, in practice, threshold-based prices are often interpreted as the drug’s value-based price.

A better practice would be to adjust the period of a cost-effectiveness analysis to consider the product’s lifetime (rather than the more typical lifetime horizon of a patient) and incorporate expected price changes before and after exclusivity for both the intervention and the comparator⁹ or frequently and consistently update cost-effectiveness analyses over a product’s time in the market to update the value-based price as prices change for the intervention and comparator.

Reason 4: Commonly Used Cost-Effectiveness Thresholds Have Great Uncertainty

This likely does not come as a surprise, but estimating a value-based price based on conventional cost-effectiveness requires a quantified threshold. However, in the US, we do not use an explicit or single threshold for health policy decision-making,¹⁰ and even if we did, there would be uncertainty in the specific threshold(s) to use. Practitioners of cost-effectiveness analyses often cite a threshold of $104,000 per health unit gained, which was estimated based on a simulation model examining the associations of health insurance status within a nonrepresentative subset of individuals in the US.¹¹ However, those authors emphasize the sensitivity of the findings to the assumptions modeled and the potential variability by population.

If threshold-based prices are estimated, using a wide range of thresholds is more consistent with the current US health care environment. This could range from thresholds that are lower than what is typically used¹² to thresholds that are higher than what is typically used.¹³ A wide range would better capture the uncertainty and potential variability in threshold that exists. Furthermore, economic theory^7,14 suggests that the optimal threshold may vary by disease condition.

We are not suggesting that value is not a factor in pricing decisions within the US. Rather, we are suggesting that (1) launch prices are often not reflective of what manufacturers are actually paid, (2) quantifying value is complex, (3) the limitations of a conventional cost-effectiveness analysis should be considered when interpreting its findings, and (4) reliance on a single or a narrow threshold is not evidence-based. These 4 things, among others, complicate the interpretation of a drug’s value based on its launch price.

Where Do We Go From Here?

We have described some of the challenges of interpreting a drug’s value based on selected evidence at launch. However, a focus on a drug’s launch price as a proxy for the reward the product receives before loss of exclusivity may be misplaced if the goal is to have a truly dynamically efficient system that produces the optimal amount of innovation.¹⁵ The societal net benefits of a medicine over the long term (ie, the life cycle social surplus)—rather than the drug’s launch price—would be a more appropriate focus that is better aligned with pharmaceutical market design.¹⁶ We suggest that decision makers take both a product lifetime view and a broader societal perspective when judging and rewarding value creation. 

Author Affiliations: Leerink Center for Pharmacoeconomics, MEDACorp LLC (MDW), Boston, MA; Center for the Evaluation of Value and Risk in Health, Tufts Medical Center (MDW, JDC), Boston, MA; Comparative Health Outcomes, Policy, and Economics Institute, University of Washington (LPG), Seattle, WA; National Pharmaceutical Council (JDC), Washington, DC.

Source of Funding: None.

Author Disclosures: Dr Whittington is employed by MEDACorp, an affiliate of Leerink Partners. Dr Campbell is employed by the National Pharmaceutical Council, a nonprofit health policy research organization. Dr Garrison is founder and CEO of Global Health Economics, LLC, which provides consulting services to a wide range of life sciences companies as well as governmental and nongovernmental organizations.

Authorship Information: Concept and design (MDW, LPG, JDC); drafting of the manuscript (MDW, LPG, JDC); critical revision of the manuscript for important intellectual content (MDW, LPG, JDC); administrative, technical, or logistic support (MDW); and supervision (MDW).

Address Correspondence to: Melanie D. Whittington, PhD, MEDACorp LLC, 53 State St, Boston, MA 02109. Email: Melanie.whittington@medacorp.com.

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